Quebecor World Reports Lower Q2 Results

Wednesday, August 03, 2005

Press release from the issuing company

MONTREAL--Aug. 2, 2005-- Quebecor World announces that for the second quarter 2005 the Company reported net income of $10 million from continuing operations compared to $16 million in the second quarter of last year. The continuing operations do not include a previously identified non-core group of assets slated for sale and the second quarter results for 2004 have been restated to reflect this fact. On the same basis, earnings per share in the quarter were nil compared to $0.05 in the second quarter of 2004. Operating income was $53.4 million compared to $55.1 million during the same period last year. Before impairment of assets, restructuring and other charges, earnings per share were $0.22 compared to $0.30 in the second quarter of 2004. Consolidated revenues for the quarter were $1.49 billion compared to $1.47 billion last year.
For the first six months of 2005 net income was $26.7 million or $0.05 per share compared to $48.4 million or $0.23 per share last year. Before the impairment of assets, restructuring and other charges, earnings per share for the first half of 2005 were $0.50 compared to $0.51 last year. Consolidated revenue for the first six months of 2005 was $3.05 billion compared to $2.95 billion in 2004.
"These results are in line with what we communicated in our first quarter press release. As we indicated at that time, they reflect the loss of an important customer in the UK, the underperfomance of our French operations and our U.S. magazine platform as well as continuing global price pressures. We are implementing our plan to address these issues by investing in new, more efficient technologies, aggressively seeking additional volume and reducing costs," said Pierre Karl Peladeau, President and CEO, Quebecor World Inc. "While we still face a challenging market environment we have registered some important customer wins and renewals in our U.S. retail and directory business and in our Canadian and Latin American platforms. We continue to generate significant free cash flow. In the second quarter free cash flow was $117 million, an increase of $46 million from the same period last year."
In the quarter the Company recorded impairment of assets, restructuring and other charges of $31.8 million. The cash portion of this charge is $15.8 million and is related to workforce reductions in the UK, Sweden and North America. The second quarter restructuring initiatives will affect 886 employee positions however it is estimated that 63 new jobs will be created at other facilities. Impairment of long-lived assets of $16 million were recorded in the quarter, mostly in the Company's French operations.
In the second quarter 2005, selling, general and administrative expenses were $99 million compared to $103 million in the second quarter of 2004, a decrease of 4%. For the first six months of 2005, SG&A expenses were $200 million compared to $211 in the same period last year. Excluding the negative impact of currency translation SG&A expenses were lower by $17 million in the first six months of 2005. The decrease is mainly due to workforce reductions and cost containment initiatives.
North America
In North America revenues were $1.15 billion compared to $1.12 billion in the second quarter last year. For the first six months of 2005 revenues were $2.31 billion compared to $2.24 billion in the first six months of last year. Operating income in the second quarter before impairment of assets restructuring and other charges was $84.9 million compared to $92.7 million and operating margin on the same basis was 7.4% compared to 8.3%. The Magazine and Direct group continued to experience negative price pressures, and an unfavourable product mix resulting in lower operating income and margins. Volume for the quarter declined 3% in the Magazine group. This was partially offset by lower labor costs resulting from workforce reductions. In the Retail group revenues and volume increased. This is attributable to the addition of new customers and increased volume form existing customers. In the Book and Directory group despite a challenging price environment operating income and margins were relatively flat in the second quarter due to cost containment and increased efficiencies. In Catalogs revenue decreased on flat volume as a result of lower prices. In Canada excluding the favourable impact of currency translation revenues decreased by 3% in the quarter but operating income and margins increased due to savings from cost containment initiatives and operational efficiencies. Volume was flat in the second quarter and increased 2% in the first six months of 2005 compared to last year.
Europe
In Europe revenues in the second quarter were $284 million compared to $310 million in the second quarter of 2004. Excluding the positive impact of currency translation revenues for the quarter were down 12%. Volume in Europe decreased 13% in the second quarter and is largely due to the catalog and magazine segments in France and the loss of a significant customer in the UK. Price erosion also had a significant impact on results. Operating margin in France was negative in the quarter and for the first six months of 2005. The challenging market environment was exacerbated by work stoppages in the first quarter that resulted in additional inefficiencies that affected results in the second quarter. In European operations outside of France operating income and margins were lower compared to the second quarter last year. This is mostly attributable to the Company's UK facility which has been able to replace some of the lost volume but at lower margins.
Latin America
In Latin America revenues were $66 million up 49% compared to the second quarter last year. Volume for the quarter increased 17% compared to the same period last year. Much of this increase is attributable to the positioning of the Company's Latin American book and directory facilities as a low-cost alternative to publishers who were having their work produced in China. This has resulted in increased cross-selling from North America and Europe. The positive impact of currency translation and increased paper sales also contributed to increased revenue. Operating income and margin increased in the quarter and for the first six months compared to the same periods last year.
Discontinued Operations
Quebecor World's core printing activities involve the printing of magazines, catalogs, retail inserts, books, directories and direct mail for the world's largest publishers and retailers. As the Company has grown by acquisition certain facilities were included in those transactions that do not relate to these core businesses. Approximately a dozen facilities in North America are involved in the printing of short-run contractual work such as marketing materials, annual reports, travel and fashion brochures. These activities are different from Quebecor World's core businesses and do not benefit from the advantages and synergies of the Company's global platform. The Company has announced its intention to sell this non-core group. Consequently the operating results related to these activities have been presented separately in the Company's consolidated financial results as discontinued operations and comparative figures have been restated to conform to the presentation adopted during the quarter ended June 30, 2005.
Dividend
The Board of Directors declared a dividend of $0.14 per share on Multiple Voting Shares and Subordinate Voting Shares. The Board also declared a dividend of CDN$0.3845 per share on Series 3 Preferred Shares, CDN$0.421875 per share on Series 4 Preferred Shares and CDN$0.43125 on Series 5 Preferred Shares. The dividends are payable on September 1st, 2005 to shareholders of record at the close of business August 16th, 2005.